Con­sumers bat­tling to re­pay car, home loans

South Africans’ over­all credit health has im­proved, but many con­sumers with large loans are be­hind with their re­pay­ments. re­ports

Pretoria News Weekend - - PET CARE -

TRANSUNION’S Con­sumer Credit In­dex (CCI) for the sec­ond quar­ter of this year shows that, although South Africans’ cred­it­wor­thi­ness has im­proved slightly, the num­ber of delin­quent ve­hi­cle and home loans has in­creased.

There is a dif­fer­ence be­tween loan delin­quency and a loan de­fault. Ac­cord­ing to In­vesto­pe­dia: “Loan delin­quency is com­monly used to de­scribe a sit­u­a­tion in which a loan bor­rower is late on a pay­ment. A loan goes into de­fault when a bor­rower fails to re­pay his loan as sched­uled in the terms of the agreed prom­is­sory note he signed when he re­ceived the loan. De­fault­ing on a loan could ad­versely af­fect the bor­rower’s credit rat­ing, mak­ing it dif­fi­cult for him to bor­row money in the fu­ture.”

The CCI climbed to 53.8 points in the sec­ond quar­ter from 50.8 in the first quar­ter and 49.2 a year ear­lier.

A score of 50 is con­sid­ered the break-even point, with a lower score re­flect­ing wors­en­ing credit health, which is char­ac­terised by an in­crease in new ac­counts in de­fault (three months in ar­rears), as well as dis­tressed bor­row­ing (in­creas­ing use of store cards and credit cards).

TransUnion says only 0.5% of all credit-ac­tive con­sumers ac­cess their TransUnion credit re­port an­nu­ally, and this re­sults in con­sumers not proac­tively man­ag­ing their debt and not be­ing aware of the sta­tus of their debt.

Lee Naik, the chief ex­ec­u­tive of TransUnion South Africa, says although in­fla­tion­ary pres­sure has eased, it is dif­fi­cult for con­sumers to re­cover from de­fault­ing on re­pay­ments for large loans, such as home loans and ve­hi­cle loans, and it may take longer for an im­prove­ment on these loans to come through.

“Our ad­vice to con­sumers is if you have ex­pe­ri­enced un­ex­pected ex­penses and are strug­gling to meet your debt-re­pay­ment obli­ga­tions, speak to your lend­ing in­sti­tu­tion and ask for a pay­ment hol­i­day or to re­struc­ture your debt,” Naik said.

The CCI takes into ac­count rates of early de­faults, de­fined as loans that are three months in ar­rears, draw­ing from about 50 mil­lion ac­counts held by some 22m in­di­vid­ual bor­row­ers.

It also looks at dis­tressed bor­row­ing on re­volv­ing credit (store cards and credit cards), mea­sur­ing R145 bil­lion of re­volv­ing con­sumer credit to gauge the de­gree of house­hold fi­nan­cial stress.

Priya Naicker, the ad­vice man­ager at Old Mu­tual Per­sonal Fi­nance, says con­sumers be­come caught in a credit cy­cle when they use credit to fi­nance ev­ery­day ex­penses. This re­sults in them spend­ing a large por­tion of their dis­pos­able in­come on ser­vic­ing debt, and they end up pay­ing much more for goods and ser­vices be­cause of high in­ter­est rates on credit. If you use credit to pay off other credit, the cy­cle con­tin­ues.

Naicker says a debt cy­cle refers to on­go­ing bor­row­ing that is likely to lead to un­af­ford­able credit pay­ments over the long term.

Debt can be used to see you through a tough patch or to en­able you to af­ford a large, once-off ex­pense, such as a car or home, by spread­ing out the pay­ments.

CREDIT STA­TUS

Bad con­sumer debt is show­ing signs of im­prov­ing, fig­ures from Statis­tics SA (Stat­sSA) re­leased ear­lier this month show.

Stat­sSA says the num­ber of civil sum­monses is­sued in June de­creased more than 16%, to about 48 000 cases, while judg­ments for bad debt fell 10.5%, com­pared with a year ear­lier. How­ever, the value of debt in civil judg­ments rose 1.6% to R350m.

It is es­ti­mated that, by the end of last year, more than 40% of credit-ac­tive con­sumers’ had im­paired credit records.

When you ac­cu­mu­late an un­man­age­able amount of debt – par­tic­u­larly short-term, high-in­ter­est debt – you are at risk of be­ing trapped in a debt cy­cle. Old Mu­tual says you can pre­vent this by:

• Not tak­ing on ex­pen­sive short­term debt, which typ­i­cally in­cludes credit and store cards. If you do run up short-term debts, pay off the most ex­pen­sive debts first.

• Build up sav­ings to cover a fi­nan­cial emer­gency. This will pro­vide you with an al­ter­na­tive to bor­row­ing.

• Cre­ate a ro­bust bud­get. This will help you to plan and al­lo­cate your spend­ing so that you can pay off ex­pen­sive debt while con­tribut­ing to an emer­gency fund.

• Cre­ate ex­cite­ment around your goals and put a plan in place to achieve them. This will help you to re­sist the temp­ta­tion to cre­ate debt that could com­pro­mise your goals.

ka­belo.khu­malo@inl.co.za

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